memo Essay

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Pages: 4
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To: Pharma Co.
From: Chao Sun
Re: Restructuring Costs
Date: Sep 28, 2014
Background
Pharma Co. is a U.S. subsidiary of a U.K. entity that prepares its financial statements in accordance with (1) U.S. GAAP for reporting to its U.S.-based lender and (2) IFRSs in reporting to its parent. Pharma Co. is considering the relocation of a manufacturing operation from its present location to a new facility in a different geographic area as part of the restructuring a business line. The relocation plan related to the following facts:
Facts Financial affection
Dec 15, 2010, issued a press release to terminate the lease of the old facility.
Jan 31,2011,at which time it will sign the lease termination agreement, Pharma Co. plans to vacate the …show more content…
Although there is no details in appendix B, employees still can information of termination benefit from communication with CEO. Since this is a nonvoluntary termination plan, we are sure that Pharma Co. should recognize the one-time employee termination benefits for the year ended Dec 31, 2010 under GAAP requirement.
One-time employee termination benefitsAs the appendix B posted, the employees are not terminated their service or received their benefits. According to the ASC 420-10-30-5, “ If employees are not required to render service until they are terminated in order to receive the termination benefits (that if, is employees are entitled to receive the termination benefits regardless of when they leave) or if employees will not be retained to render service beyond the minimum retention period, a liability for the termination benefits shall be measured at its fair value at the communication date.” Therefore, $3M approximately cost could not record instead of its fair value at Dec 27, 2010.
Relocation Cost and Staff Training Cost
Although Pharma Co. has entered into irrevocable contracts with certain other relevant parties, since they do not mention the specific time to start the relocation program, it is not need to recognized those future expense until it is really paid.
Dismantling Cost
As ASC 420-10-25-15 notes about associated costs, “The liability shall not be recognized before it is incurred, even if
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